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AMD warns of less than rosy revenues for 1Q07
9 April, 2007
By Liam Lahey
Advanced Micro Devices Inc. says it expects to report
revenue of approximately $1.225 billion (US) in the
quarter ending March 31, 2007 (1Q07). The chipmaker
says its' revenues declined sharply quarter-over-quarter
for the computing solutions segment, primarily due
to lower overall average selling prices (ASPs) and
significantly lower unit sales, especially in the
re-sale channel.
AMD plans to restructure its business model to increase
operational efficiencies and lower its operating cost
structure. AMD will reduce 2007 capital expenditures
by approximately $500 million, which the company believes
will not materially impact capacity plans for the
year.
AMD said it would also significantly reduce discretionary
expenses and limit hiring to critical positions. No
other details were provided. The company issued a
statement adding it would provide more details during
its conference call to report its' 1Q07 financial
results on April 19th.
AMD is getting squeezed by Intel, said Warren Shiau,
associate partner, senior analyst, IT research, The
Strategic Counsel. Currently, Intel has a superior
product line-up and superior manufacturing efficiency,
he said.
"When Intel had the chance last time round it
didn't take it to AMD as hard as it could have. It
doesn't seem like Intel is going to make that mistake
again," he said. "Because of its manufacturing
edge Intel can handle relatively lower ASPs than AMD.
And because it has product superiority it can set
price levels, so what we're probably going to see
is Intel edging price levels lower and lower until
AMD can't cover its fixed costs."
What's happening now is going to get a lot worse
for AMD, Shiau added.
"AMD is still a sitting duck for at least another
quarter and maybe more if it can't ramp-up production
of its new Barcelona-based designs quickly enough,"
he said. "Q2 to Q3 could see a really bad cash
flow situation at AMD."
On the bright side, Shiau noted, AMD needs to last
through another couple of quarters of adversity before
it should get some relief from Barcelona. And Intel
is highly unlikely to drive AMD out of business, he
said.
"But Intel is in such a good position right
now even when Barcelona comes on stream, Intel is
opening up such a big process/manufacturing advantage
that AMD is always going to be behind," he said.
"That it can decide to do enough damage to peg
AMD at a certain portion of the market for years to
come, by hitting AMD so bad that it has to compromise
R&D, product development and process/manufacturing
investment.
"If the AMD announcements changes from reducing
discretionary expenditures and freezing hiring to
cutting back on capital investment to cutting R&D
and product development teams, then you'll know this
is happening."
Rob Enderle, principal analyst for The Enderle Group,
also said the market in general is under a great deal
of margin pressure at the moment. Not only is this
a traditionally slow time of year but the Microsoft
Windows Vista operating system has simply not had
as big an impact on sales as many thought it would.
"In addition, there is very little driving volume.
There are only three memorable new machines in the
market, two from HP (Touchsmart) and one from Toshiba
(R400)," he said. "Most everyone else is
focused on competing on price alone and that is driving
down ASPs and not anything for sales volume."
Finally, corporate buying is way off and that further
puts pressure on margins, he said, adding, "this
is one of the reasons HP is trying to launch a premium
mid-line later in the year."
Meanwhile, Shane Rau, program manager, PC semiconductors,
for Framingham, Mass.-based IDC Corp. told eChannelLine
with regards to AMD's channel comments that the nature
of the channel being indirect sales through intermediaries
like distributors, means there is delayed feedback
to a supplier like AMD when changes occur in demand
or the competitive environment.
"Thus, the effects . . . can be more painful
for a company that does a lot of business in the channel,
as AMD does," he said.
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